DeFi Lending & Borrowing: 10 Practical Ways

Published on 7 August 2023 10 min read

Use DeFi to Earn Interest on Deposits
Borrow Against Your Crypto Assets
Participate in Yield Farming
Leverage DeFi for Margin Trading
Participate in DeFi Lotteries
Leverage DeFi for Insurance
Use DeFi for Remittances
Engage in Peer-to-Peer Lending
Utilize DeFi for Asset Management
Explore DeFi-based Prediction Markets

Imagine a world where you, yes you, can lend out your money and earn interest, all while sitting comfortably on your couch. No bank meetings, no paperwork, just your laptop and a cup of tea. Sounds like a dream, right? Well, welcome to the reality of using DeFi platforms for lending and borrowing. This blog will walk you through ten practical ways to tap into this revolutionary financial system. Let's get started!

Use DeFi to Earn Interest on Deposits

Let's kick things off with a simple and straightforward way of using DeFi platforms for lending and borrowing. You can earn interest on your deposits. It's similar to a bank savings account, only better. Why? Because DeFi often offers much higher interest rates. Plus, you're in control, not some stuffy bank manager.

Here's a step-by-step guide:

Choose a DeFi platform: There's no shortage of options when it comes to DeFi platforms. From Aave and Compound to Yearn Finance, there's something for everyone.
Deposit your crypto: Once you've picked a platform, the next step is to deposit your cryptocurrency. Make sure you understand the terms of your deposit, including the interest rate and any potential risks.
Earn interest: This is the best part. Once your crypto is deposited, you start earning interest. It's like planting a money tree, only a lot faster and less messy.

Remember, while using DeFi platforms for lending and borrowing can be exciting and potentially profitable, it's important to do your homework and understand the risks. After all, no one wants to lose their hard-earned crypto.

Borrow Against Your Crypto Assets

Here's another cool way of using DeFi platforms for lending and borrowing: borrowing money against your crypto assets. Think of your cryptocurrency as a house. You own it, but you can also mortgage it to get some cash. It's the same idea with DeFi platforms, only you're using your crypto instead of a house.

Here's a quick look at how it works:

Choose a DeFi platform: Just like with earning interest, your first step is to pick a DeFi platform. Each platform has its own terms and conditions, so make sure you choose one that suits your needs.
Submit your crypto as collateral: Next, you'll need to submit your cryptocurrency as collateral. This is like handing over the keys to your house—a big step, but necessary if you want to borrow money.
Borrow money: Once your collateral is accepted, you can borrow money. The amount you can borrow will depend on the value of your crypto and the platform's loan-to-value ratio.

Just like with any loan, you'll need to pay back what you borrow with interest. So make sure you understand the repayment terms before you dive in. Borrowing against your crypto assets can be a great way to get cash without selling your precious coins. But remember, with great power comes great responsibility!

Participate in Yield Farming

Have you ever heard of 'yield farming'? If not, don't worry, it's not about tractors and crops, but about using DeFi platforms for lending and borrowing to increase your crypto returns. The 'yield' here refers to the return on your investments, while 'farming' is a fun way of saying you're actively managing those investments to get the highest yield possible.

Here's how to get started with yield farming:

Find a DeFi platform with farming options: Not all platforms offer yield farming, so your first step is to find one that does. Read up on the platform's rules and requirements to make sure it's a good fit for you.
Provide liquidity: Yield farming revolves around liquidity pools, which are smart contracts that contain funds. By adding your funds to these pools, you act as a liquidity provider.
Earn rewards: In return for providing liquidity, you get reward tokens. The more you invest, the more tokens you can earn.

Yield farming can be a bit more complex than just earning interest or borrowing against your assets. But if you're willing to put in a little extra effort, it can also be a lot more rewarding. Just remember to do your homework and understand the risks before you jump in.

Leverage DeFi for Margin Trading

One of the more advanced practices when using DeFi platforms for lending and borrowing is margin trading. Margin trading in the world of decentralized finance allows you to borrow funds to trade a larger amount than you'd be able to with just your own funds. It's like a shortcut to a bigger trading volume, but remember, with great power comes great responsibility.

Here's a practical guide to begin your journey with DeFi margin trading:

Choose a DeFi platform that supports margin trading: Take your time to research and choose a platform that you find intuitive and trustworthy. Each platform has its own margin trading rules and procedures, so get familiar with them.
Understand the risks: Margin trading can amplify both your gains and losses. It's important to understand the risks before you start. Don't invest more than you can afford to lose. Remember, the cryptocurrency market can be volatile.
Start small: Start with small trades until you get the hang of it. As you get more comfortable, you can slowly increase your trading volume.

Margin trading might sound a bit intimidating at first, but once you get the hang of it, it can be a powerful tool in your DeFi toolbox. Remember to be patient, start small, and keep learning. DeFi margin trading is not a get-rich-quick scheme, but a strategy that benefits from knowledge and experience.

Participate in DeFi Lotteries

Here's a fun fact: you can use DeFi platforms for lending and borrowing to also participate in lotteries. Yes, you read that right, lotteries! But before you start dreaming about striking it rich, let's clarify a few things.

The concept of DeFi lotteries is similar to traditional lotteries, but with a twist. Instead of your money going into a black hole if you don't win, your funds are actually used in DeFi protocols to generate interest. This interest is then distributed to the lottery winners.

Here's a simple step-by-step guide to get you started:

Pick a DeFi lottery platform: There are several platforms out there that organize DeFi lotteries. Research, choose one, and familiarize yourself with its rules.
Buy tickets: Lottery tickets are usually purchased with crypto. The more tickets you have, the higher your chances of winning.
Wait for the draw: Draws usually happen at regular intervals. If you're lucky, you might just win a prize!

So, why not take a chance? Participating in DeFi lotteries is not just about winning big, it's also about being part of the exciting world of decentralized finance. Remember, the journey is as important as the destination. Happy betting!

Leverage DeFi for Insurance

Did you know that using DeFi platforms for lending and borrowing can also help you get insurance? It's a unique way to mitigate risk, especially in the volatile world of crypto. But how does it work? Let's break it down.

DeFi insurance operates by providing coverage against potential financial losses on various DeFi platforms. For instance, if a smart contract fails or a hacker steals funds, DeFi insurance can step in to cover the losses.

Here's how you can use DeFi for insurance:

Choose a DeFi insurance platform: Several platforms offer DeFi insurance. They differ in terms of coverage, terms, and costs, so it's worth doing a little homework to find the right one for you.
Purchase a policy: Once you've chosen a platform, you can buy a policy. This is similar to traditional insurance — you pay a premium to get coverage for a certain period.
Claim if necessary: If something goes wrong on the DeFi platform you're using, you can file a claim. If approved, your loss will be covered by the insurance.

So, while it may seem like venturing into uncharted waters, leveraging DeFi for insurance can offer an extra layer of security in your crypto journey. Just remember to always tread wisely and understand the terms of your insurance policy. After all, it's better to be safe than sorry!

Use DeFi for Remittances

Imagine this: you're working abroad and want to send money back home. Traditional banking routes can be a headache, right? They're slow, costly, and sometimes, downright frustrating. What if I told you that using DeFi platforms for lending and borrowing could change this? Yes, DeFi can revolutionize remittances too! Let's see how.

DeFi, short for Decentralized Finance, uses blockchain technology to make financial services more accessible and efficient. It's like a universal bank where you don't need to go through lengthy paperwork or wait for business hours to send money across borders.

Here's a simplified step-by-step guide on how to use DeFi for remittances:

Convert your money to cryptocurrency: First, you'll need to convert your money into a cryptocurrency that's accepted on the DeFi platform. You can do this using a crypto exchange.
Send the cryptocurrency: Once you have your cryptocurrency, you can send it to the recipient's digital wallet. This transaction happens almost instantly, regardless of where the recipient lives.
Recipient converts cryptocurrency to local currency: The recipient can then convert the cryptocurrency back into their local currency using a local crypto exchange. They can then withdraw it as cash or use it online.

And voilà! You've just sent money across the world in a jiffy. It's cheaper, faster, and more convenient than traditional methods. So, next time you're sending money abroad, remember: DeFi could be your new best friend.

Engage in Peer-to-Peer Lending

So, you've got some extra cryptocurrency sitting in your digital wallet. You could leave it there, but wouldn't it be great if you could put it to work and make a bit of extra money? Well, with peer-to-peer lending on DeFi platforms, you can do just that! Let me explain how.

Peer-to-peer lending, also known as P2P lending, is a simple concept. It's just like when you lend money to a friend, but in this case, the friend is a stranger on the internet. Scary? Not with DeFi. DeFi platforms use smart contracts to make sure everyone sticks to their end of the deal. It's a win-win situation.

Here's how you can start using DeFi platforms for lending and borrowing in a P2P setting:

Choose a DeFi platform: There are many DeFi platforms out there, but some popular ones include Aave, Compound, and MakerDAO. Do your research and pick one that suits your needs.
Deposit your cryptocurrency: Once you've picked a platform, you can deposit your cryptocurrency there. This will be the money you're lending out.
Set your terms: You can often choose the interest rate and the length of the loan. Remember, higher interest rates might attract borrowers faster, but they also come with higher risk.
Wait for a borrower: Once you've set your terms, you just need to wait for a borrower to accept them. Once they do, the loan is automatically issued through a smart contract.
Earn interest: As the borrower repays the loan, you'll receive the repayments plus interest directly into your digital wallet.

And there you have it! Peer-to-peer lending is a great way to earn passive income on your cryptocurrency. Just remember, all investments come with risk, so make sure you're comfortable with the terms before you start lending.

Utilize DeFi for Asset Management

Now, let's talk about another practical way you can use DeFi platforms for lending and borrowing - asset management. Yes, that's right! The same advanced financial services that big investment firms offer are now available to you, thanks to DeFi.

Asset management in the traditional financial world can be a bit daunting, with its jargon and complex charts. But with DeFi platforms, it's a whole lot simpler. So, what are the steps to start using DeFi for asset management?

Find a DeFi platform that offers asset management services: Many DeFi platforms now offer asset management services. Platforms like Yearn.Finance, Set Protocol, and Melon are all great places to start.
Deposit your assets: Much like the peer-to-peer lending we discussed earlier, you'll need to deposit your cryptocurrency into the DeFi platform. This is the money that will be managed.
Select an investment strategy: These platforms often offer a variety of investment strategies based on different risk levels. You can pick one that aligns with your investment goals.
Watch your assets grow: Once you've selected an investment strategy, the platform will automatically manage your assets for you. You can sit back, relax, and watch your cryptocurrency grow.

That's all there is to it! With DeFi platforms, asset management is no longer a service reserved for the financial elite. It's a tool available to anyone, anywhere, at any time. So why not give it a try? It could be a game-changer in how you manage your cryptocurrency assets.

Explore DeFi-based Prediction Markets

Another exciting way to use DeFi platforms for lending and borrowing is by exploring prediction markets. You might be wondering, "What's a prediction market?" Well, it's a place where you can bet on the outcome of future events. And with DeFi, prediction markets have become a lot more accessible. Let's see how it works.

Choose a DeFi Prediction Market: There are several DeFi platforms that offer prediction markets. Augur and Gnosis are two such platforms that have carved a niche for themselves in this space.
Select an event: You can choose to bet on anything from sports events to election outcomes, and even weather forecasts. The possibilities are endless!
Place your bet: If you think you have a good read on the outcome, you can place your bet using your crypto assets.
Wait for the outcome: If your prediction is correct, you earn a return. If not, you lose your bet. It's as simple as that!

DeFi-based prediction markets are a fun and potentially profitable way to use your crypto assets. But remember, as with any form of betting, there's a risk involved. So, always bet with caution and never risk more than you can afford to lose.

With that caveat in mind, why not take a dip into DeFi-based prediction markets? It could be an exciting way to put your knowledge and intuition to the test.

If you're eager to learn more about DeFi Lending & Borrowing, don't miss the workshop 'Start Your web3 Journey' by Tom Glendinning. This workshop will give you a solid foundation in the world of decentralized finance and help you navigate the rapidly evolving web3 landscape.